Tuesday, July 2, 2013

JPMorgan: Ten Reasons to Get Overweight Commodities... Now

For the first time since September 2010, JPMorgan  is making an Overweight call on commodities, reports the StreetInsider.

JPMorgan analysts led by Colin Fenton say seasonal forces are reversing, supply channels are thinly stocked and sentiment is universally bearish.

"In a number of commodities, prices have fallen far enough for long enough to force involuntary cuts in production and to spur fresh demand," the analysts said. "Risk is now skewed toward demand growth surprise and production disappointment. WTI crude timespreads have broken out to the strongest levels in 6 years."

JPMorgan's ten reasons for going overweight commodity indices now:

1) Seasonal factors drove the 2Q correction in spot crude oil, and seasonal factors will reverse it.

2) Fresh demand for storable commodities, in response to the steep price corrections.

3) Price-driven, involuntary production cuts in crude oil, copper, and gold.

4) Inflation in production cost economics.

5) Spare capacity is tight and non-economic supply risks are rising.

6) Lagged benefits to commodity demand from rate cuts and other stimulative measures.

7) Stealth shift in US export policy already at work is further linking WTI with international prices.

8) Chinese shift in policy: ‘go green’ does not mean what it means in Seattle. It means go to oil&gas.

9) Stronger USD against what? The DXY does not include the CNY.

10) Global growth and inflation rates will likely soon bottom. Rising values in these rates, even from low bases, provide a favorable economic environment for commodity index total returns.

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